Long-term rental or LTR, is essentially a form of financing that goes beyond a simple credit arrangement and is more precisely defined as an integrated service offering. Although technically similar to a loan, LTL stands out due to its regulatory flexibility, which allows any company to offer it. Thomas Nokin, CEO of Basikon

Table of contents

1. Origin of LTR
2. A strong and growing sector
3. A market open to all types of players
4. Fletting trend or revolution in the financial market?
5. Mastering the keys to success
6. Invest in a robust tool and accelerate your profitability
7. Make sure you compare solutions, a demo's worth a thousand words
8. Conclusion, don’t let your business fall behind

Developed during the 1990s, Long-term rental (LTR) has emerged today as a strategy that allows renting a property without becoming its owner. This new trend raises the question: Is LTL a fleeting trend or a revolution in the financial market? Unlike leasing with a purchase option (LOA), this new form of financing offers significant advantages to both individuals and professionals. These benefits have recently evolved, leading to robust growth in the market, which is now accessible to a variety of players beyond the industrial professionals it once served. This is why it has become crucial for lessors to have a competitive LTR offering to seize every opportunity and position themselves skillfully in a rapidly expanding sector.

Origin of LTR

Emerging in the 1950s in the United States, what is now known as LOA or leasing was once reserved for industrial professionals for significant purchases of expensive production machinery. It wasn’t until the 1980s that leasing appeared in France, developing in the automotive industry. While this arrangement was advantageous for manufacturers, companies, and banks, it lacked the significant aspect of services and maintenance. Thus, long-term rental (LTR) emerged in the 1990s.

Some financial terms...

Technically speaking, leasing with a purchase option (LOA) is known in the financial language as financial leasing, and such transactions are regulated and reported to the Central Bank. This also refers to the contract duration, which is set over a long period. In contrast, long-term rental (LTR) is an operating lease and is not reported to the Central Bank. Additionally, the contract may be for a potentially shorter period and offers advantages regarding services and asset maintenance.

Thus, long-term rental (LTR) is defined as a rental with an obligation to return the asset. In contrast, leasing with a purchase option (LOA), also called leasing, hire purchase, or credit lease, is considered consumer credit, offering the possibility of buying the asset at the end of the specified period (source: https://www.service-public.fr/particuliers/vosdroits/F2437).

So, what is it?

LTR allows the temporary rental of an asset (typically 12 to 60 months) but does not allow ownership. As such, it is not considered consumer credit, so it does not impact the borrowing capacity and bank accounts in the same way as LOA. However, it offers numerous advantages, including several services that may include asset maintenance, inspections, 24/7 assistance, financial loss guarantees, and sometimes even insurance.

Thus, LTR is expected to become the most commonly used solution by 2030, thanks to its easier accessibility for providers and increased simplicity for users.

This trend allows both professionals and individuals to access a wide range of assets, whether vehicles, equipment, or agricultural machinery. This leasing arrangement also provides payment flexibility, facilitating better management of financial resources, thus freeing up capital for other strategic investments

In addition to its flexibility, LTR simplifies asset management by entrusting maintenance and management to the lessor, reducing the administrative burden for the lessee. LTR allows the lessee to use state-of-the-art assets without bearing the frequent replacement costs, as these are included by default in the LTR contract. Thus, it enables lessors to offer more equipment, whether new or used, of the latest generation.

Time savings and practicality together provide more comfort and peace of mind for both parties.

What about taxes?

Regulation and taxation in the realm of long-term rental are critical for players in the financial market.

In France, for instance, LTR operations are subject to VAT, whose rate may vary depending on the type of financed asset. Currently set at 20% for equipment and vehicles, this tax aims to generate fiscal revenue for the state while ensuring a fair distribution of fiscal burdens between different financing modes.

In other words, in the case of credit, VAT is included in the financing, whereas for leasing, VAT is excluded but charged on each installment.

In summary...

Long-term rental offers many benefits for businesses and individuals, such as:

• Financial resource optimization: Avoids high initial costs of asset purchases and frees up capital for other needs or investments.

• Flexibility: Provides great flexibility in terms of duration and conditions, allowing clients to adapt solutions to their specific needs.

• Simplified asset management: The responsibility for asset maintenance and management often falls on the lessor, thus lightening the administrative load for the lessee.

• Technological upgrades: Enables companies to access recent equipment and the latest technologies more quickly than through traditional purchases.

LTR is a growth accelerator. It’s the holy grail for companies to move towards leasing because they see it as a crucial advantage in developing their business and managing their lifecycle. Moreover, it’s a good way to recycle, reuse, and/or refinance an asset while generating revenue. This is especially important when starting a business without a large capital outlay. Stéphane Vettori, CPO at Basikon.

A strong and growing sector

The long-term rental (LTR) sector, particularly for vehicles, was barely affected by the COVID-19 crisis.

Indeed, after an average annual growth of 6% since 2003, vehicle fleets have continued to expand, from 12,000 vehicles in 1979 to 1,912,269 in 2019, including 1,455,195 in LTR. This represents a growth of 6.08% since 2018. By June 2024, LTR accounted for 64,330 registrations, a figure that even exceeds the volumes recorded after COVID-19 in 2019 which stood at 61,811 registrations.

This also highlights the growing interest for lessors to offer this new type of financing. Thus, 1 in 3 cars is financed through long-term rental.

In France, LTR reached a 51% market share in 2023, or vehicle fleet financing, far ahead of leasing (20%), credit (10%), and cash purchases (16%) (figures from the 2023 Fleet and Mobility Barometer by Arval Mobility Observatory, co-produced with Ipsos).

France vs. abroad?

The trend in this sector is mainly present in Europe, with a significant share of around 40% for leasing, compared to the United States where rentals (of all types) only account for 10%. This difference can be explained by various factors, such as the economic level of the country and cultural perceptions. Germany, for example, saw a growth of 12.4% in 2023 compared to 2022.

While LTR is largely present in the automotive sector, it is also becoming popular in agriculture, information technology, and industry.

A market open to all types of players

As previously mentioned, leasing was once reserved for industrial professionals but quickly expanded in England, France, and then internationally.

Today, this new form of financing continues to grow (+4.8 points from 2022 to 2024 in the French market), particularly LTR, which is opening up to a multitude of players and sectors, from artificial intelligence to real estate, and even agricultural operations. This trend, mainly in the automotive sector, demonstrates the increasing popularity of the LTR sector as an asset management solution for a wide range of companies, from SMEs to large corporations.

It also shows that the long-term rental market is increasingly expanding among individuals, for several reasons such as the presence or absence of existing capital, the flexibility of monthly payments, accessible offers for both new and used assets, and easier access to next-generation goods.

Green light for the tech and agricultural sectors

Additionally, the LTR market is now opening up to a variety of assets, particularly technological and industrial equipment. It is much more advantageous in terms of management and capital for expensive purchases, as evidenced by a 12% increase in 2023 for the rental of technological equipment (figures from the Long-Term Rental Market Observatory). This figure proves the adaptability and relevant growth of this financial solution.

Long-term rental thus offers a business opportunity accessible to a wide range of players, largely due to the less regulated nature of LTR compared to traditional loans. This offers greater flexibility for those who wish to offer this service.

Fletting trend or revolution in the financial market?

Banks see an opportunity

According to data from Global Market Insights, Inc., the global LTR market was estimated to exceed $200 billion in 2022, with continued projected growth in the coming years that could reach 223 billion dollars by 2027. This expansion has led many banks to create subsidiaries specializing in LTR, thus seizing opportunities for growth and diversification of their activities.

Here are two examples of these players:

**BNP Paribas Lease Group**, a subsidiary of the BNP Paribas Group, positions itself as a leader in financing equipment and vehicles through LTR. By offering leasing solutions tailored to the varied needs of businesses, professionals, and individuals, BNP Paribas Lease Group stands out with its comprehensive offering, including additional services such as insurance and fleet management, which were not previously directly included in the contract. This personalized approach allows its clients to benefit from a customized solution that meets their specific requirements.

**Agilauto**, a subsidiary of the Crédit Agricole Group, offers LTR financing solutions for a variety of passenger and commercial vehicles. Agilauto supports companies in managing their vehicle fleets and optimizing their investment through tailored services and in-depth expertise in the field of LTR.

More than just an opportunity...

These banking subsidiaries specializing in long-term rental (LTR) play a crucial role in expanding and promoting this financing method by offering flexible solutions tailored to the needs of businesses and individuals. They also help energize the LTR market by providing comprehensive services and supporting innovation in this constantly evolving sector.

The existence of such subsidiaries is mainly due to the growing interest in this sector. As mentioned earlier, the LTR market has seen an annual increase of +6% since 2023, and its 51% market share represents more than half of traditional financing methods. The growing demand from businesses and individuals is also fueling the expansion of LTR, which seeks to provide flexible and affordable financing solutions.

An attractive sector for investors

Furthermore, the profitability of LTR is another major incentive for banks to invest in this field. According to an analysis by McKinsey & Company, profit margins in the LTR sector are often higher than in other segments of the financial market.

Indeed, long-term rental contracts offer banks opportunities for stable revenue generation over several years, regardless of the lessee's borrowing capacity, making it an attractive area for financial investors seeking solid and sustainable returns. By investing in subsidiaries specializing in LTR, banks can diversify their revenue streams and strengthen their competitive position in the financial market.

This financing trend is also developing among startups and local companies looking to meet new mobility needs, an excellent way for small businesses to have a vehicle fleet. Among them is the Lyon-based startup Flease, which offers long-term rental of used vehicles to small and medium-sized enterprises (SMEs).

Mastering the keys to success

In this dynamic and increasingly competitive environment, strong financial management is a key to success and a strategic asset for assessing and managing the risks associated with leasing contracts, particularly regarding the residual value of assets and interest rate fluctuations.

Success also lies in smart investments

To navigate a constantly evolving market while making strategic decisions, companies plan to increase their IT budgets in the coming years.

According to this article on technology company trends, by 2025, 90% of tech sector executives will see their IT budgets explode, with 70% of them heavily investing in new software and technical personnel. This will enable them to make strategic decisions. By acquiring specialized financial management skills, LTR players can optimize their operations, minimize risks, and seize growth opportunities in a dynamic and competitive market—targeting average profit margins ranging from 5% to 15%.

Entering the LTR market is a way to optimize tax strategy and achieve better ratios. Long-term rental is also expanding into new sectors with different players, from agriculture to artificial intelligence. Stéphane Vettori, CFO at Basikon

Invest in a robust tool and accelerate your profitability

In a time of high inflation and increasing market competition, business leaders must clearly define their objectives and acquire financing technologies that can streamline and simplify their operations, all while maintaining efficiency and innovation.

They aim to simplify their internal processes while keeping control over the final cost.

Globally, managing workflows in the Long-term rental sector represents a real challenge for market players. In 2022, a study by Deloitte revealed that LTR management processes often involve multiple stakeholders, including financing providers, car dealers, insurers, and fleet management companies. This diversity of participants makes the coordination of operations complex, requiring sophisticated systems and processes to ensure effective collaboration among the different stakeholders.

Toward strategic investments

The configuration of IT tools used in long-term rental is another major challenge.

In 2024, a survey by Gartner found that nearly 60% of companies specializing in LTR face challenges related to IT system compatibility and data integration between different software platforms. This fragmentation of tools can lead to operational inefficiencies and data processing errors, compromising service quality and impacting customer satisfaction.

Simultaneously, data exploitation is of critical importance in managing LTR workflows.

In 2022, an analysis by McKinsey & Company found that companies in the LTR sector generate a significant amount of data related to leasing contracts, cash flow, and asset performance. However, only 30% of this data is effectively used for strategic decision-making.

This underuse of data partly stems from gaps in analytics and reporting processes, as well as challenges related to data quality and reliability.

To address these challenges, LTR companies need to invest in dedicated management systems and establish robust data governance processes, ensuring the accuracy, consistency, and relevance of the information used in their operational workflows.

More than just a tool!

For LTR companies, a robust leasing process management software represents more than just a tool; it enables efficient contract management, automates billing and payment processes, and monitors financial performance in real-time.

Investing in agile and high-performance software offers advanced features such as asset management separate from financial management, data analysis, financial modeling, and cash flow management. These capabilities allow companies to make strategic decisions based on accurate and up-to-date information.

In an ever-growing global competitive environment, these parameters become essential for standing out in terms of operational efficiency and customer satisfaction.

Make sure you compare solutions, a demo's worth a thousand words

In the rapidly growing LTR universe, where workflows are numerous, participants abound, and competition is fierce, having a tool that meets the challenges of today and tomorrow is crucial. That's why we developed Basikon.

Discover simplified finance

More than just software, it's the go-to tool for LTR players looking to position their offerings at the forefront of digital innovation. Leveraging our technological and industry expertise, numerous LTR specialists have already benefited from Basikon, both in France and internationally, including companies like Solfiz, Financial Lease, and Orion Leasing.

**_See our Customer Success Stories_**

Imagine meeting all your needs while optimizing your transactions and data

1. Cutting-edge technology: less than 5 years old and natively digital, Basikon's low-code and 100% API technology enables successful projects with speed and agility unmatched by older technologies from established solution providers.

2. Intuitive configuration: simplify your daily management with a user-friendly interface and easy drag-and-drop workflow configuration. No need to be an IT expert to customize your data fields or adjust your operational processes. With Basikon, optimizing your workflows becomes a breeze.

3. Comprehensive coverage of needs: Basikon's dynamic NoSQL data model gives expert users full control and ensures that not just 80% or 90%, but 100% of operational requirements are reliably addressed and easily integrated.

4. Simple and unlimited integration: forget the hassle of system connections, which cause long deployment delays. Our 100% API platform includes a standard smart extensions module that allows you to develop, test, and validate any type of connector in just a few days. Your fully integrated solution can be delivered in just a few months!

This way, you can transform your processes in record time and benefit from a fully customized solution that perfectly meets your needs, providing a decisive competitive advantage in a constantly evolving sector.

Conclusion, don’t let your business fall behind

Long-term rental has become much more than just an option; it's now a vital strategy. By providing access to a wide range of resources—from vehicles to phones, and even livestock—without tying up capital, LTR offers unparalleled flexibility, already widely adopted by both professionals and individuals.

In an environment where every decision is crucial, having powerful leasing software is essential. It not only allows for efficient asset management but also helps remain agile in the face of market changes. In short, LTR, supported by the right tools, is the key to ensuring sustainable and controlled growth.